VZCZCXRO7436
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0934/01 2240437
ZNR UUUUU ZZH
P 110437Z AUG 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8289
INFO RUEHHM/AMCONSUL HO CHI MINH 5002
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 HANOI 000934 
 
SENSITIVE 
SIPDIS 
 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: OREP EFIN EAID ECPS ECON ETRD VM
SUBJECT:  SCENESETTER FOR CODEL SHELBY, AUG. 21 to 24, 2008 
 
HANOI 00000934  001.2 OF 004 
 
 
SUMMARY AND INTRODUCTION 
------------------------ 
 
¶1. (SBU) Embassy Hanoi looks forward to welcoming you to Vietnam. 
Prime Minister Nguyen Tan Dung's June visit to Washington 
exemplifies a U.S.-Vietnam relationship that 
continues to broaden and mature, in the process spurring 
economic, social and technological development that has eased the 
path for a limited expansion of personal freedom and expression for 
the people of Vietnam.  As such, the United States is viewed by the 
majority of Vietnamese as a key partner in Vietnam's current and 
future success.  High-level visits like yours create opportunities 
for us to influence developments and respond to Vietnam's interest 
in globalization, reform, combating corruption, and enhancing 
educational opportunities for its people.  Your particular interest 
in banking and financial services coincides with one of the 
Government of Vietnam's greatest challenges and priorities, as the 
country's economy is going through a period of adjustment following 
tremendous growth in 2007. 
 
¶2. (SBU) Vietnam's economic successes have translated into 
greater international clout.  Vietnam has just stepped down from 
chairing the U.N. Security Council in July, a major diplomatic 
achievement for the GVN.  While GVN leaders are not fully sure how 
to handle all the attention, they understand that the United States 
plays a direct role in creating the conditions for their nation's 
success.  Leaders here are thankful, in particular, for the key 
technical assistance we've given over the past seven years to help 
reform the system of economic governance. 
 
¶3. (SBU) Challenges of course remain.  GVN leaders assume the 
Communist Party's preeminent political role to be the linchpin of 
stability, and human rights remain a major sticking point in our 
relationship with the GVN.  China remains the GVN's critical 
strategic preoccupation, but many Vietnamese view improving 
relations with the United States as a key indicator of the 
tremendous progress since the dark days of the 1970's and 1980's. 
For these reasons, Vietnam's leaders are committed to continued 
progress in bilateral relations and will speak with you 
optimistically about the future of U.S.-Vietnam ties.  End summary. 
 
ECONOMIC SUCCESSES AND CHALLENGES 
--------------------------------- 
 
¶4. (SBU) After a decade of isolation and failed economic 
policies, Vietnam is determined to catch up with the Asian 
tigers.  Vietnam's "doi moi" (renovation) program of economic 
reform, begun in 1986, has set the country on a successful market 
economy path, with an average growth rate of 7.5 percent over the 
past decade.  A recent World Bank study described Vietnam's poverty 
reduction rate as the most significant in such a short period of 
time of any nation in history.  The GVN focuses on exports and 
foreign direct investment in its drive to achieve middle-income 
status by 2010.  Vietnam is second only to Thailand in rice exports, 
and second only to Brazil in coffee.  Other leading exports include 
crude oil, apparel, footwear and 
aquatic products.  Vietnam is also "moving up the value chain" by 
increasing its exports of furniture, machinery, cameras, computers, 
printers, consumer electronics, and other diverse products.  U.S. 
investors tell us the key challenges they face in Vietnam are 
underdeveloped infrastructure, a shortage of skilled workers and 
managers, and the considerable level of state participation in the 
economy.  For its part, the GVN is grappling with issues of 
corruption, improving the legal environment, and implementing its 
WTO commitments. 
 
¶5. (U) The United States is currently Vietnam's largest export 
market and third largest overall trade partner.  Total two-way trade 
in goods with the United States in 2007 was USD 12.53 billion, up 29 
percent from 2006.  One of the most positive stories from 2007 was 
the surge in U.S. exports to Vietnam from USD 1.1 billion to USD 1.9 
billion, driven by agricultural exports such as cotton (up 92 
percent), soybeans (up 1,480 percent), and wheat (up 1,120 percent). 
 U.S. commodities including hardwood, hides and skins, tree nuts, 
fresh fruit, and poultry and red meats also posted record gains in 
¶2007.  Driven by the technology industry, the United States is 
Vietnam's seventh largest investor, with USD 2.6 billion in 
registered FDI since 1988, and USD 2 billion more in "U.S.-related 
investment." 
 
¶6. (SBU) While the great majority of experts consider Vietnam's 
long-term economic prospects to be bright, short-term macroeconomic 
imbalances are worrying investors.  Vietnam's current turmoil is 
rooted in high inflation (27 percent year-on-year July), the large 
 
HANOI 00000934  002.2 OF 004 
 
 
current account deficit, and inefficient allocation of resources, 
which is particularly obvious in the disproportionate amount of 
state resources devoted to powerful State Owned Enterprises (SOEs). 
 
BANKING AND FINANCIAL SERVICES 
------------------------------ 
 
¶7. (U) Part of Vietnam's current macroeconomic difficulties are due 
to its booming banking sector.  Credit growth was over 50 percent in 
2007, with some newer joint stock banks growing loans at close to 90 
percent.  Although the GVN has committed to keeping growth at around 
30% for 2008, the State Bank of Vietnam (SBV) is already admitting 
that credit growth will likely exceed that number.  The economic 
downturn in early 2008 exposed weaknesses in the system, and there 
are now a number of small banks receiving liquidity support from the 
SBV.  Analysts predict that an increase in non-performing loans at 
the end of the calendar year may bring about additional instability 
if local investors lose confidence in the banking system.  State 
domination is a factor here, too, as state-owned commercial banks 
own 60-70 percent of banking assets. 
 
STOCK MARKET 
------------ 
 
¶8.  (U) It has been a turbulent year for Vietnam's stock market. 
After topping out over 1200 last year, the market dropped quickly as 
the SBV struggled to control inflation by reducing liquidity. 
Earlier this year, the market fell as low as 366 before slowly 
rebounding as economic indicators improved.  With the market now 
hovering in the mid-400's, investor confidence seems to be 
improving, but challenges for the State Securities Commission (SSC) 
remain.  Companies are slow to list on the exchange, instead 
preferring to raise capital in the unregulated gray market, and SSC 
enforcement capabilities are a work in progress.  To its credit, the 
SSC is aware of these shortcomings and is working to improve its 
regulatory capacity. 
 
MONEY LAUNDERING AND TERRORISM FINANCE 
-------------------------------------- 
 
¶9.  (SBU) Vietnam is believed to be a destination country for 
significant amounts of laundered money, much of it stemming from the 
narcotics trade in the U.S. and Canada.  After years of dragging its 
feet, the GVN has begun to slowly address the issue.  Vietnam 
recently joined the Asia Pacific Group of the Financial Action Task 
Force (FATF) and is scheduled for an evaluation this November.  Law 
enforcement cooperation on AML is also gradually improving, with 
2007 bringing the first instance of cooperation from the Ministry of 
Public Security.  There is, however, much work left to be done.  The 
GVN's ability to prevent, detect and prosecute money laundering 
remains weak.  The SBV has an AML Information Center charged with 
collecting and monitoring bank data, but the Center suffers from a 
lack of resources and political will.  Terrorism finance is not 
considered to be an issue in Vietnam at this time. 
 
HUMANITARIAN, EDUCATIONAL, AND TECHNICAL ASSISTANCE 
--------------------------------------------- ------- 
 
¶10. (U) U.S. Agency for International Development (USAID) programs 
provide aid in legal reform, governance, economic 
growth, HIV/AIDS, environmental protection, and disaster 
prevention.  For FY 2007, U.S. aid from all agencies was about USD 
86.6 million, the bulk of which has gone towards providing 
health-related assistance, notably in the areas of HIV/AIDS and 
avian influenza.  Vietnam is one of fifteen countries receiving 
assistance from the President's Emergency Plan for AIDS Relief 
(PEPFAR), through which the United States will provide USD 88 
million in FY 2008 to expand integrated HIV/AIDS prevention, care 
and treatment programs.  The U.S. Centers for Disease Control and 
Prevention (CDC) provides assistance in HIV/AIDS, avian influenza, 
and emergency outbreak response. 
 
¶11. (U) U.S. assistance in areas other than HIV/AIDS remains very 
modest in relation to spending in smaller neighboring nations, but 
increased substantially in FY08 from that low base to more than USD 
10 million due to earmarks for governance programming and demining. 
The Administration's FY09 request roughly equals the total for FY08. 
 To a large degree, the FY08 earmarks reflect the profound impact of 
several U.S. programs.  U.S. programs such as Support for Trade 
Acceleration (STAR) and the Vietnam Competitiveness Index have 
helped to reshape trade 
and economic regulation, with huge positive impact on governance 
throughout the country.  Treasury is also starting to engage on 
economic issues, with programs in areas such as anti-money 
 
HANOI 00000934  003.2 OF 004 
 
 
laundering, taxation, insurance and bond market development. 
Regarding education, the United States now sponsors well over 200 
students for graduate study in the United States through a 
combination of Fulbright grants and the Vietnam Education Foundation 
(VEF).  In-country, the Fulbright Economics Teaching Program trains 
mid-level Vietnamese professionals in economics and public policy. 
Both Embassy Hanoi and ConGen HCMC are actively involved in 
promoting educational exchanges. 
 
ADOPTION ISSUES 
--------------- 
 
¶12. (SBU) The selling and buying of babies and children for 
international adoption is a serious issue in Vietnam.  Due to 
pervasive problems with fraud and children being offered for 
adoption without the consent of their birth parents, we have 
informed the GVN that we will not renew the current bilateral 
agreement which expires in September.  As of July 1, no new 
applications for adoptions are being accepted by the GVN.  The clear 
"way forward" for Vietnam is to accede to the Hague Convention on 
Inter-Country Adoption, which it says it wishes to do, as soon as 
possible.  We are heartened that, after months of denying USG 
reports of corruption in the system, the Vietnamese police have 
recently arrested a number of persons for falsifying documents and 
trafficking in babies.  This is a first step and we stand ready to 
help Vietnam make the systemic reforms it needs to run an 
international adoptions program which protects the rights of all 
concerned. 
 
HUMAN RIGHTS CHALLENGES 
----------------------- 
 
¶13. (SBU) Serious deficiencies related to human rights in 
Vietnam include lack of freedom of speech, freedom of assembly and 
freedom of the press.  One of our key objectives is to end the use 
of catch-all "national security" provisions for the prosecution of 
peaceful dissent.  We continue to call for the release of all 
prisoners of conscience, but where we see individuals expressing 
their political opinions, many of our government interlocutors see 
"lawbreakers" trying to destabilize the regime.  The recent arrests 
and sackings of Vietnamese reporters and editors in the wake of a 
corruption scandal reveal the on-going battle within the GVN over 
the role of freedom of the press.  The continued existence of groups 
in the United States that advocate regime change complicates human 
rights engagement by providing ammunition to hard-liners who want to 
stoke the fading paranoia that we are indeed still "the enemy." 
Reassuring the GVN that the USG does not support separatist groups 
can assist in building a better human rights dialogue based on 
mutual trust. 
 
¶14. (SBU) Despite these obstacles, real progress has been made.  Key 
Vietnamese leaders are committed to enhancing governance, 
establishing the rule of law, and combating corruption.  Vietnam's 
leading newspapers are more aggressive in terms of the types of news 
they publish and their willingness to push back against censors, 
peaceful protests involving a myriad of issues have been tolerated, 
and surprising progress on religious freedom has been made.  While 
problems remain, we removed Vietnam from our list of countries of 
particular concern for religious freedoms in late 2006. 
 
MIA/POW - FULLEST POSSIBLE ACCOUNTING 
------------------------------------- 
 
¶15. (U) Obtaining the fullest possible accounting of American 
POW/MIAs remains an important goal in the bilateral relationship for 
the United States.  The Joint POW/MIA Accounting Command has 
operated in Vietnam since 1988.  JPAC has accounted for 880 
Americans previously listed as MIA; 1766 remain missing throughout 
Southeast Asia. 
 
WAR LEGACY ISSUES 
----------------- 
 
¶16. (SBU) In your meetings, you may hear references to 
"consequences of war" or "legacies of war" issues, which include 
Agent Orange(AO)/Dioxin, unexploded ordnance (UXO), land mines, and 
Vietnamese MIAs.  While debate continues over the human impact of 
AO, recent studies reveal that dioxin contamination is concentrated 
in approximately 20 "hotspots," mostly former U.S. bases where AO 
was stored.  Areas subjected to heavy aerial spraying do not 
currently have soil concentrations considered hazardous.  Our 
engagement on this issue has accomplished much, in both transforming 
the tone of the dialogue and capacity building.  Projects have 
included work at the Danang airport as well as a USD 3 million 
 
HANOI 00000934  004.2 OF 004 
 
 
Congressional appropriation for "dioxin mitigation and health 
activities," which USAID has begun to implement.  The USG is 
continuing to work together with the GVN, UNDP, Ford Foundation and 
other NGOs to discuss the next steps in the environmental 
remediation of three priority hotspots in Danang, Hoa Binh and Phu 
Cat airfields. 
 
¶17. (SBU) Since 1989, USAID, through support from the Patrick J. 
Leahy War Victims Fund (LWVF) and other sources, has provided more 
than USD 43 million to support organizations to develop programs for 
disabled people.  The USG has invested more than USD 37 million in a 
broad spectrum of programs not only to remove unexploded ordnance 
and landmines but also to address the effects of UXO on Vietnamese 
living in affected areas.  Today, various NGOs conduct UXO and land 
mine clearance, risk education, and victim rehabilitation.  The USG 
has also donated equipment to the PAVN to assist in UXO and landmine 
clearance and return land to productive use.  In 2006, the State 
Department provided USD 3.5 million to support UXO action and 
demining activities in Vietnam, almost a third of which went 
directly to PAVN in the form of donated demining equipment.  For 
FY08, Congress stipulated that approximately USD 2.5 million be 
spent on demining programs, a substantial increase from the $800,000 
requested by the Administration. 
 
CHINA 
----- 
 
¶18. (SBU) While Vietnam's engagement with the United States will 
continue to broaden, China necessarily constitutes Vietnam's most 
important strategic preoccupation.  This is not to say that Vietnam 
is "choosing" China over the United States; the situation is much 
more complex than that.  For starters, Vietnam's leadership is 
sophisticated enough to realize that relations with China and the 
United States do not represent a zero sum game; it is possible to 
have good relations with both.  While China constitutes a vital and 
necessary commercial partner and former ally, it is also perceived 
as a significant and frustrating constraint to Vietnam's freedom on 
action.  Continuing disagreements over territorial issues in the 
South China Sea threaten to reawaken Vietnam's long-standing 
animosity for their former colonial master.  China also looms large 
on security issues, as the GVN is understandably cautious with 
regard to Chinese reactions to increased cooperation with the 
United States. 
 
WHAT YOU CAN EXPECT 
------------------- 
 
¶19. (SBU) You can expect your interlocutors not only to be 
articulate and well informed, but also to speak in terms generally 
supportive of growth in the bilateral relationship.  As noted above, 
lingering suspicions still exist among conservatives about the 
development of closer ties with the United States.  Nonetheless, we 
fully expect the overall tenor to be one of support and interest at 
a measured pace that will not upset the GVN's calibrated attempts to 
maintain balance among its other regional partners.  There may be 
media interest among Vietnamese outlets and you should expect 
photographers at some GVN meetings. 
 
¶19. (U) Again, we look forward to your visit and stand ready to do 
everything we can to make your visit to Vietnam as productive as 
possible. 
 
MICHALAK